Ltd buying another Ltd - SDLT question

[PurpleFox]

Hi, looking for peoples thoughts and experience on the following scenario.....

I would like to buy a commercial property, it would be purchased through my Ltd company. The seller has suggested that it may be beneficial for me to purchase his Ltd company which owns the property, freehold and is unmortgaged. His company does not trade anything and just owns this commercial property.

This could potentially reduce the stamp duty from the standard commercial rate of 3% to 0.5%

It would be a cash purchase.

It seems too good to be true to me, am I missing something?

I would of course ensure that correct due-diligence is carried out and that there isn't an unexpected tax bill or similar lurking.........

Appreciate your thoughts, are there any potential gotchas, drawbacks etc or is this fairly straightforward? Thanks in advance

To pre-empt the first question, I am currently between accountants as my previous lot went into liquidation

[anonymous-user]

Is there an advantage to having your company buy the other company over you buying it? Or having a group company that then owns the shares of both companies.

I’m getting at a structure that avoids taking both companies down if one gets into difficulty amongst other things

[Redarress]

What JPJPJP states...........do not ever, if at all possible ,keep your property in your trading company.

[PurpleFox]

JPJPJP said:

Is there an advantage to having your company buy the other company over you buying it? Or having a group company that then owns the shares of both companies.

I’m getting at a structure that avoids taking both companies down if one gets into difficulty amongst other things

Right, I see what you are saying there but some of the funds for purchase are tied up in my Ltd company. If I purchase myself, I would have to draw the money out and pay myself which will be taxable......

[PurpleFox]

Redarress said:

What JPJPJP states...........do not ever, if at all possible ,keep your property in your trading company.

Even if your company only exists to trade property? Not trying to be flippant, genuine question. I have bought and sold quite a bit of property, mostly personally and more recently within the company. But I have no experience with buying a company through a company if that makes sense.

[PurpleFox]

And thanks both for your replies.

[anonymous-user]

Consider this approach. Set up a new ltd. Lend it the money from the existing / main ltd so it can buy the shares of the company owning the property.

Without a bit of a look at the financials, definitive advice can’t really be given, but the general principle of keeping the new property separate is a sensible one to look at

[PurpleFox]

That makes sense, thanks a lot.

[springfan62]

If you buy the company rather than the property you need to consider the deferred tax liability in the company.

If the company originally purchased the property for a lot less than you are paying there is likely to be a deferred corporation tax liability on the increase in value.

[anonymous-user]

Deep and wide due diligence is needed when buying a company. There can be all sorts of things lurking!

[PurpleFox]

That's all been very helpful, thanks.

[Alpinestars]

What are you going to do with the property?

What the vendor says is correct. You’ll pay SD, not SDLT. However there could be some unintended consequences depending on what you’re going to use the property for.

[PurpleFox]

The property will be a refurbishment project then a most likely sell on. Possibly hold and rent but preferably sell on.

Having spoken to my accountant and solicitor it seems that the savings I had considered possible on the SD (£10,000 approx) will be eaten up by additional solicitors costs and accountancy fees and even then there is no guarantee that nothing will come out to bite me in the future in terms of unpaid debts etc.

So back to plan a which is buy the building freehold rather than buy the company. Just need to decide whether to use my existing company t make the purchase or form a new one specifically for this project..........

[Alpinestars]

PurpleFox said:

The property will be a refurbishment project then a most likely sell on. Possibly hold and rent but preferably sell on.

Having spoken to my accountant and solicitor it seems that the savings I had considered possible on the SD (£10,000 approx) will be eaten up by additional solicitors costs and accountancy fees and even then there is no guarantee that nothing will come out to bite me in the future in terms of unpaid debts etc.

So back to plan a which is buy the building freehold rather than buy the company. Just need to decide whether to use my existing company t make the purchase or form a new one specifically for this project..........

What does your existing company do? You risk tainting its ER status if you put an investment property into it.

[springfan62]

Alpinestars said:

What does your existing company do? You risk tainting its ER status if you put an investment property into it.

It will not be an investment property if he refurbishes it and sells it on.

[Alpinestars]

springfan62 said:

Alpinestars said:

What does your existing company do? You risk tainting its ER status if you put an investment property into it.

It will not be an investment property if he refurbishes it and sells it on.

Yes I appreciate that. That’s why I asked what the company does. It’s more likely to be scrutinised if the company does something completely different to property development.

[PurpleFox]

Existing company is a property management company but in reality only manages my own properties. I have done 2 other buy and sell on developments within the Ltd already.

Hope that helps?

[Alpinestars]

PurpleFox said:

Existing company is a property management company but in reality only manages my own properties. I have done 2 other buy and sell on developments within the Ltd already.

Hope that helps?

Holding property in the company is a bad asset/income for ER purposes - depends whether that’s relevant to you or not. Development is a trade, so should be ok, but might raise questions. If you’re going to hold it as an investment property, I’d hold it separately to the management company.

[PurpleFox]

Thanks for your help. ER - is that entrepreneurs relief? You might have guessed that I am not an accountant so need to take it one step at a time

I have heard of it but it's not something I have ever used but that could be because I have received little to no useful advice from my previous accountants.

So if I am definitely going to sell it on then it can go in my current company as this is a trading company and a refurb and resale is a trade.

If it were to be held as investment then it would be better to start a new 'investment' company which is presumably better for tax reasons......because an investment would see CGT which could be somehow reduced by ER?

[Alpinestars]

Yes ER is entrepreneurs’ relief. It only applies to trading companies/trades. If it applies, CGT is charged at a reduced rate on a sale of the business/shares. Hence might not be applicable to you if you’re not selling. Investment properties taint the trading nature of the business, which if substantial enough, means you wouldn’t get ER on a sale. So it’s usually best to keep (significant) investment activities out of trading companies. Development should be fine.